Editor's note: This is a transcript of the recording, D@W Exclusive Podcast:
Michael Hudson on Junk Economics. Democracy at Work's Paul Sliker and Dante
Dallavalle talk with Michael Hudson, one of the world's six economists who
accurately predicted the 2007-2008 financial crisis -- see "The New Road To
Serfdom: An illustrated guide to the coming real estate collapse" (Harper's,
May 2006). His new book, J is for Junk Economics (see review by Peter Koenig),
reveals how mainstream economic vocabulary has been turned upside down in
striking Orwellian fashion to mean just the opposite of what the words and
terms originally described. Michael Hudson explains how the corporate media
and academia use well-crafted euphemisms to conceal how the economy actually
operates. The transcript includes select time markers relative to the start
time. A local mp3 file is provided as well as articles/interviews and film
links of/with Michael Hudson at the end of this file.
_______________________________________________________________________________
Michael Hudson on Junk Economics, Debt Cancellation,
and Emptying Out Economies
Interviewed by Paul Sliker and Dante Dallavalle
Democracy at Work, April 3, 2017
local MP3 file (71.7MB)
"How a society defines economic terms and relationships
will determine who controls it."
--Michael Hudson, The Insider's Economic Dictionary,
Part A, July 2013
Michael Hudson is President of The Institute for the Study of Long-Term
Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished
Research Professor of Economics at the University of Missouri, Kansas City and
author of many books including:
* J Is For Junk Economics: A Guide to Reality in an Age of Deception (2017),
* Absentee Ownership and its Discontents: Critical Essays on the Legacy of
Thorstein Veblen edited with Ahmet Oncu (2016),
* Killing the Host -- How Financial Parasites and Debt Destroy the Global
Economy (2015),
* Finance as Warfare (2015),
* The Bubble and Beyond: Fictitious Capital, Debt Deflation and Global
Crisis (2012),
* Finance Capitalism and Its Discontents: Interviews and Speeches 2003-2012
(2012),
* America's Protectionist Takeoff 1815-1914: The Neglected American School
of Political Economy (New Edition 2010),
* Super-Imperialism: The Economic Strategy of American Empire, complete book
in PDF (2nd ed 2003),
* Archeology of the Ancient Near East (Edited books)
* Labor in the Ancient World (2015)
* Creating Economic Order: Record-Keeping, Standardization and the
Development of Accounting in the Ancient Near East (2004)
* Debt and Economic Renewal in the Ancient Near East (2002)
* Urbanization and Land Ownership in the Ancient Near East (1999)
* Privatization in the Ancient Near East and Classical Antiquity (1996)
* The Lost Tradition of Biblical Debt Cancellations (1993)
ISLET engages in research regarding domestic and international finance,
national income and balance-sheet accounting with regard to real estate, and
the economic history of the ancient Near East. Michael Hudson acts as an
economic advisor to governments worldwide including Iceland, Latvia and China
on finance and tax law. He has been been associated with Harvard's Peabody
Museum for over thirty years in Babylonian economic archeology. For more than
twenty years he has headed a group out of Harvard, the International Scholars
Conference on Ancient Near Eastern Economies (ISCANEE), writing a new economic
history of the ancient Near East. Beginning in 1994, the five colloquia
volumes ISCANEE has published, was based on the decision of the necessity to
re-write the history to free it from the modern ideological preconceptions
that have distorted much popular understanding.
Killing the Host is a more popular version of The Bubble and Beyond.
It shows that when the financial sector takes over, it's very much
like a parasite in nature. People think of parasites simply as taking
the life blood of the host and draining the energy. But in order to do
that, the parasite has to have an enzyme to take over the host's
brain. They take over the brain and convince the host that the free
luncher is actually part of the host's own body, and even its baby to
be protected. That's what the financial sector has done.
Classical economics was all about separating the rent-extracting
sectors--landlords, monopolies, and finance--from the rest of the
economy. That was unearned income. It wasn't necessary. The whole idea
of classical economics from Quesnay's Tableau Economique all the way
through Adam Smith and John Stuart Mill was to look at the finance
sector, the landlord sector and monopolies as unnecessary. You're
going to get rid of them. You're going to tax away the land's rent or
else nationalize the land. And you are going to have public
enterprises as basic infrastructure so that they couldn't be
monopolized.
--Michael Hudson, 22 Nov 2016
Now, it is clear the decline of a language must ultimately have political
and economic causes ... It becomes ugly and inaccurate because our
thoughts are foolish, but the slovenliness of our language makes it
easier for us to have foolish thoughts. The point is that the process is
reversible.... If one gets rid of these habits one can think more
clearly, and to think clearly is a necessary first step towards political
regeneration ...
-- George Orwell, "Politics and the English Language" (1946)
[0:05:47]
... Why did you choose to begin your introduction [to J Is For Junk
Economics] with George Orwell and Confucius, particularly your reference
to our need to "rectify our definitions of crucial economic terminology."
How does this relate to the theme of your overall book?
When I wrote it, I didn't realize that the very month it came out, George
Orwell's 1984 was going to be on the bestseller list. And that's because of
his concept of doublethink. A vocabulary that you use shapes how you think
about the economy around you. And it shapes how you think about politics.
Doublethink, using words to mean the opposite of what they really mean, is a
tool of deception. It's a tool that persuades people to act against their
interest.
For instance, if you talk about The Great Moderation that's supposed to have
preceded the 2008 crash, that was actually the most immoderate period in
recent history. It's the period where the economy polarized between the 1
percent and the 99 percent. The only thing moderate was that the working class
didn't really fight back and say, Wait a minute, the economy's been hijacked.
One reason that they were made quiescent was because of the use of vocabulary
telling them, There's no such thing as unearned income. There's no discussion
of economic rent as unearned income. If you look at the national income and
product accounts it shows the economy is growing when actually what's growing
is simply overhead. That's not real wealth. The real economy is actually
shrinking and if people believe not only what they're told on the news, but if
they use the vocabulary that the newscasters use, they're going to live in a
kind of parallel universe world instead of seeing reality.
... Another prominent distinction ... is this: you're technically a financial
economist. So one would expect to see lots of economic and mathematical jargon
filling the pages of your book. But a really refreshing dimension of your
work, Michael, is your integration of sociological and historical references.
Reading the book I find [some] of this has to do with your respect for the
institutionalists school of thought. What was this vein of theory focused on
[and] who were it's main proponents?
[0:08:13]
People don't really hear of the word Institutionalists anymore. I don't know
when you will find that in a popular publication. The main Institutionalists
were people who said, Wait a minute, Marx talked about the means of production
and the material world and what was necessary to produce. They looked at the
technology. If you look at technology and productivity -- the
Institutionalists were writing in the 1890s and early 20th century --
Thorstein Veblen, Simon Patton -- and if you look at technology a century ago,
you'd think the whole world would be living in prosperity now. You'd think we
had a 3-day week with 5 hours a day. The Institutionalists said, There's a
reason why we're not achieving what's technologically possible and that reason
is economic rent.
Capitalism, according to Marx, was supposed to fulfill its historic destiny in
getting rid of the landlord class, getting rid of the monopolists, getting rid
of the banks and making them public in character, and evolving towards
socialism. Instead of evolving towards socialism, industrial capitalism has
retrogressed towards feudalism and you've had a resurgence of the financial
sector, the real estate sector, the monopoly sector, the privatization of
natural resources. Instead of socialization you have privatization and the
Institutionalists looked at Why is this happening? Where does the actual
wealth go if it's not going to producers, if it's not going into the
production system? It looks at the whole superstructure of wealth and debt
that the technology economy is wrapped in.
... [Regarding J Is For Junk Economics] what is a bubble or a bubble
economy? ...
A bubble economy is where you make money not by producing more and consuming
more but actually just by inflating the price of stocks and bonds and real
estate on credit. In a way it's a Ponzi Scheme. For instance, a Ponzi Scheme
is where you tell people they're going to get rich but the only way that you
can pay off the investors of a Ponzi Scheme, you say you have a wonderful way
of making money, they're all going to get rich and you essentially do it by
economic fraud. The fraud is you convince other people to join and instead of
investing their money to make this fantastic 10 percent or 11 percent return
(that Bernie Madoff promised) you simply pay off all of this output as current
income to the investors. In order for a Ponzi Scheme to keep growing it has to
grow exponentially. They have to keep doubling the number of investors every
so often. Once new investors stop joining this scheme all of a sudden there's
no money to pay anybody because all the money that people thought was creating
wealth has already been paid out to everybody. So essentially that's how the
whole economy has worked....
[0:13:02]
Basically, a bubble economy requires not only increasing debt but it requires
massive bank fraud. Alan Greenspan deregulated the banks and when the FBI in
2004, said already there's the largest wave of bank fraud in American history,
the Federal Reserve refused to do anything about the fraud all around it. The
newspapers by 2007, 2008 ... everybody was talking about liar's loans (the
liars were the banks and the brokers) [and] NINJA borrowers (No Income No Job
no Assets) getting loans.
So the fact was everybody knew there was a fraud but all the investors thought
they could get out in a hurry or they could have their guy in the government
bail out the banks and make sure that all of the investors were repaid totally
by leaving the economy debt-ridden and shrinking and bringing on what's really
a financial depression. That was what Obama did. He'd promised to write down
the debt. He didn't. He wanted to keep the bubble economy going. So the
Federal Reserve kept the bubble economy going by lowering interest rates to
less than 1 percent -- it was one tenth of 1 percent, actually -- just about
zero, so that people could borrow enough money to keep buying stocks that
yielded more than 1 percent or buy foreign currency or buy bonds yielding.
[0:14:40]
There's been a gigantic bubble, really, since 2008 -- even more than there was
before 2008 because of Obama's policies and that's what people don't realize.
That the zero interest rate policy is creating all of this bank credit. None
of this goes in to financing new production. None of this goes into creating
new means of production or output or living standards. It's all gone in to the
stock and bond market and the real estate market to prevent a bank crash. To
save the 1 percent or the 5 percent from actually losing on their investments
and to pay them by cutting back social security, by trying to privatize it, by
cutting back social spending, by cutting back government spending in the
economy and making the 95 percent pay for the 5 percent.
[0:16:17]
... Explain the evolution of the term "free market" as a way of introducing
what Junk Economics and the book is all about.
That's the perfect example of doublethink -- using a word to be the opposite.
For Adam Smith and John Stuart Mill and all the classical economists of the
19th century, their idea of a free market meant the free market from economic
rent. To free it from the landlords. To free it from the monopolists and to
free markets from the banks so that you'd really have, in effect, Say's Law,
you'd really have what people earned would be earned by producing goods and
services not from just adding empty prices on. Not from property claims, not
from credit. The idea was that everybody would earn what they produce and that
would be a fair economy.
But after 1890, you had the rentier [pronounced ron'tee-a] class -- the rent
recipients, the landlords, and the monopolists, and the banks -- all fight
back and for them a free market was one free for them from the government.
Free from government regulation. Free to charge monopoly rent. Free for
landlords to shift the taxes off themselves onto the economy and make the
working class and the middle class pay. And to make sure that the bankers
could continue to indulge in fraud and reckless lending and all get bailed
out. So the idea of freedom and of the free market has been turned into the
exact opposite: to un-freedom and neofeudalism.
Neofeudalism: Much as warlords seized land in the Norman Conquest and
levied rent on subject populations (starting with the Domesday Book, the
great land census of England and Wales ordered by William the Conqueror),
so today's financialized mode of warfare uses debt leverage and
foreclosure to pry away land, natural resources and economic
infrastructure. The commons are privatized by bondholders and bankers,
gaining control of government and shifting taxes onto labor and
small-scale industry. Household accounts, corporate balance sheets and
public budgets are earmarked increasingly to pay real estate rent,
monopoly rent, interest and financial fees, and to bear the taxes shifted
off rentier wealth. The rentier oligarchy makes itself into a hereditary
aristocracy lording it over the population at large from gated
communities that are the modem counterpart to medieval castles with their
moats and parapets.
-- J Is For Junk Economics, p. 167
Expanding on what you just said can you talk a little bit more about the term
rentier capitalism and its relationship to what you call the
counter-enlightenment.
One hundred years ago people actually used the word, rentier, in the
vocabulary. A rentier was a recipient of economic rent. The meaning of rent,
originally, was a french word for a bond holder. A government bond was called
a rent. And they were coupon clippers, basically. You essentially would live
on what your ancestors had been able to take from the economy. As Balzac said,
every great fortune really originates in a great theft like privatization as
we're seeing in Russia today and in the neoliberal countries.
Landlords got their land originally by primitive accumulation. They were
warlords that seized the land and their ancestors got it. A rentier lives on
money they've inherited, basically. Or in a monopoly privilege that they've
bought from the government by convincing government -- by backing politicians
who let them be free of government regulation, free of prosecution, and charge
whatever they want and gouge the economy. Like your cable companies, your
electric companies, your phone companies and whatever they want to charge.
[0:19:31]
So we're retrogressing back into a rentier economy which is the opposite of
what Adam Smith, John Stuart Mill, and other people talked about as an economy
free from this unearned income.
... Are politicians and orthodox or mainstream economists even aware of the
history and this inversion when they use such vocabulary in their creation and
implementation of policies and programs?
When I went to school they still taught the history of economic thought
instead of mathematics. You mentioned earlier that right now a financial
economist talks about mathematics. These are all just on quick one-minute
deals. I think the average length of time for a stock transaction -- the
average holder of stock in America holds it for 1 minute, maybe not quite.
Because they're all computerized, quick buying and selling, all on
computerized robot programs.
So the mathematics they use isn't the mathematics of economic growth. It's the
economics of a quick trade, at a given moment of time, within the status quo.
Not using mathematics to say, Wait a minute, where is there going to be a
crisis? Where is there going to be an intersection between two different
trends? The whole role of mathematics has changed but economic students are
forced to spend so much time with this complex calculus, so that they can go
to work on Wall Street, that there is no room in the course curriculum for the
history of economic thought. All they know about Adam Smith is what they hear
on CNN News or other mass media that are a travesty of what these people
really say.
If you don't read the history of economic thought you'd think there's only one
way of looking at the world and that's the way that the mass media promote
things. It's a propagandistic, Orwellian way: war is peace, prosperity is only
for the rich. That's why I called the book "J Is For Junk Economics" because
the whole economic vocabulary is to cover up what's really happening and to
make people think that the economy is getting richer while the reality is
they're getting poorer and only the top is getting richer and they can only
get rich as long as the middle class and the working class don't realize the
scam that's being pulled off on them.
We obviously saw this in our recent election -- the tension between the media
and working class voters and some would argue that's how we ended up with
Trump....
[0:23:07]
The mainstream press is an echo chamber for Wall Street. I don't think the
press was favoring Trump. The press universally favored Hillary. That's why
all of the fake surveys pretended that Hillary was going to win, trying to
convince people, Why don't you vote for the majority and be a conformist? When
every single poll that was taken in May or June showed that Hillary was going
to lose to Trump but that Bernie could beat Trump -- the real enemy of the
press wasn't Trump -- the enemy was Bernie Sanders. They would much rather
lose overwhelmingly with Hillary than win with Bernie. Trump to them was the
lesser evil. I think everybody knew that Trump was what he is. But he was the
lesser evil compared to Hillary who wanted war with Russia -- atomic war is
probably the most evil thing you can do -- and she was so much on the side of
the 1 percent, so greedy, such a scam artist, so deceptive and just a liar
that people said that no matter how bad Trump is, he's the lesser evil. So
when Hillary came out and in speech and speech said, Vote for the lesser evil,
the voters said, Ok, I will vote for the lesser evil. I'm going to vote for
Trump.
This comes to a deeper question about the economics profession, about the
flawed state of mainstream or orthodox economics. I think it was your friend,
Steve Keen, who blurbed your book who said, I've spent forty years dealing
with neoclassical economists. They sincerely believe they're doing good which
is why they're so dangerous. In studying more closely the theoretical
framework and processes that mainstream economists use for measuring the
health of the economy, for the most part they don't include money, banks, or
private debt in their analytical models. That seems insane ... banks play a
huge role in the economy [and] that high levels of private household debt is
what threatened our financial system in 2008. What's happening here? Are they
just innocent and stuck in their flawed models and modes of practice? Or do
they know that they're flawed and are just unwilling to admit it for whatever
reason?
[0:25:07]
They're what's called Useful Idiots. My best economic students, by the time
they got an MA in economics back in the '70s, they decided not to go on for
the PhD because they said, Wait a minute, this is all garbage. Some of them,
the most imaginative ones, wanted to be economists to make the world better,
to promote economic reform, and to help things. Then they found that economics
is simply a question of the status quo and it wasn't how the real world worked
at all. It was really just propaganda and it had nothing to do with
understanding the world.
They found out that, Gee, we registered in economics to understand how the
economy worked and instead we're talking all sorts of nonsense. For instance
one friend of mine, who went to school with Paul Krugman, said Krugman told
him, The one thing we're told is don't question money. Don't talk about money.
Leave that to someone else. And Paul Krugman said that banks don't create
credit. Banks are like savings banks. All banks do is relend the savings to
borrowers. That's the opposite of what reality is. Modern Monetary Theory
knows that banks do create credit. Krugman would never really talk about any
individual. Finally he found this Australian, that, to him, was on the other
side of the world, and that was Steve Keen. He got in a debate with Steve Keen
where Steve said, Look, banks create credit. It's what we call endogenous
money. If you google Keen and Krugman it's like Bambi meets Goliath and was
absolutely crushed.
The response in Australia was so furious -- that here was somebody that said
money matters -- that they thought, How do we get rid of Steve Keen? We can't
fire him because that's against academic freedom. So they closed the entire
economics department at the university he was at and said, I'm sorry we don't
teach economics anymore. It ended up they had to pay him a million dollars or
something like that and he went to England.
It's reminiscent of what the Romania Dictator Ceausescu did when his daughter
got engaged to a mathematician who Ceausescu didn't like. So what did
Ceausescu do? He closed every economics department in Romania so that the
daughter would be marrying somebody without a job. That's the kind of thing
that [shows how] the mainstream economists are totalitarian.
What the University of Chicago people realized is their definition of free
market, which is one that I didn't give before: they realized, You can't have
a free market in Chile, for instance, if you're not willing to kill every one
who disagrees with you. The first thing the Chicago Boys did in Chile, after
assassinating the labor leaders, assassinating and having the assassination
program of land reformers, they closed every economics department in Chile
except for the Catholic University that taught Chicago School of Economics.
Unless you have totalitarian censorship you cannot have the free market of the
form that the mainstream economists talk about. Free only for the 1 percent
and unfreedom for the 99 percent.
Chicago Boys: After the Kissinger-Pinochet 1973 military coup in Chile,
University of Chicago economists were brought in to give away public
enterprises to the junta's supporters. To silence criticism of Chile's
privatization of social security, to let corporate owners loot pension
plans, to end public subsidies and to break labor union power, they shut
down every economics department in Chile except that of the Catholic
University where the Chicago School had gained control. (See Labor
Capitalism, Privatization and Washington Consensus).
These anti-government ideologues recognized that their brand of "free
markets" and giveaway of the public sector required that no economic
alternative be permitted or even discussed, but could only be imposed at
gunpoint with totalitarian political control. Their neoliberal version of
"free markets" is akin to medieval conquerors appropriating the land and
basic infrastructure by force of arms. The aim is to privatize economic
rent, and weaken the power of communities by rolling back democracy. This
is typically done by establishing client oligarchies and economic dukedoms.
-- J Is For Junk Economics, p. 53
You can only have Junk Economics if you censor and block any discussion of how
the economy is actually working. That's why the Washington Post came out with
the junk news list of sites. The junk news sites that they cite are things
like counterpunch, nakedcapitalism, Paul Craig Roberts -- all the sites that I
write on. You have to go to what the fakers call junk news to get reality and
if you to the mainstream you get junk economics and junk news. You can't have
more Orwellian doublethink than that.
Going back to terminology. You discuss alienation in the first chapter: how
debt has been used as a tool to obtain dependency. But an elucidating
variation to alienation and capitalism is emotional alienation. Talk about
Thorstein Veblen, the Institutionalist economists we referred to earlier, and
his concept of the instinct of workmanship and the impact of how we structure
our relations of production under capitalism.
[0:30:32]
Alienation is a Marxian term. It is a loss of control over your working
conditions. When you're afraid to complain about working conditions because if
you complain, or if you go on strike, you're one paycheck away from losing
your credit rating and having your credit-tied interest rate go up to 29
percent, and you're 3 paycheck away from homelessness, defaulting on your
mortgage or not paying your rent. Alienation is where you have to take
whatever you're given. It's a loss of self-support and it's a loss of the
production that you create. You're told what to do and you become a cog in a
machine. You can have a bad manager, a bad office, and you know what's
exploitative, but there's no better job anywhere.
Veblen said the antithesis to alienation is what he called the instinct of
workmanship where now that robots do the work and production is mechanized,
people should be able to have a roll in production where they actually use
their brains, use their creativity, [and where] they can design. We're
supposed to be living in a leisure society so they're supposed to have enough
free time to be imaginative and to be creative and to be more productive and
self-fulfilling.
What we're having is not the instinct of workmanship but the financialization
of industry that squeezes more and more money out of the workforce when the
increase is productivity, really, by not hiring new workers (when old workers
leave the job or quit) [but] by just working the work force more and more and
more. Longer and longer days without paying. Alan Greenspan talked about this
before the Senate Committees and he said, This is what makes it the great
moderation. Even though productivity is going up and we're squeezing workers
more and more, wages are not going up because they owe so much money on their
paycheck they're afraid to go on strike. They're afraid to fight back. They're
afraid to complain. That's what real alienation is. It's powerlessness.
Can you explain what junk bonds are and why they are dangerous vehicles for
what passes as wealth creation in our status quo?
In the text books you have pictures of banks issuing bonds and the bond
holders will give banks money to build a factory and hire more workers, and
you'll have pictures of workers carrying their lunch pails into the factory
now that all this credit is coming forth. But that's not what happens at all.
The junk bonds really were begun seriously in the 1980s by Drexel Burnham.
They're bonds not to finance new production but simply to take over existing
companies. To take over existing means of production and you can say, Well, a
company is now paying, let's say, a 5 percent dividend. To pay a 5 percent
dividend it has to earn 10 percent because there's a 50 percent tax rate. If
we can borrow money, we can take over the company and we can pay out 10
percent to bond holders because interest is tax-deductible -- I hope I'm not
losing the audience here -- but junk bonds really are for corporate raiders
and they raid the company. They break it up, they grab the pension fund and
tell the workers, I'm sorry we've just created a holding company for our
company and our company is really bankrupt. Our financial holding company has
everything. (It's a trick they learned from the Chicago Boys in Chile.) If you
don't let us cut back your pensions we're going to have to go bankrupt and
leave you all without pensions or depending on the government for its kindness
to pension defaulters.
The junk bond people were basically corporate raiders, predators. I knew them
very well and their personalities were, Well, it's up there for the grabbing.
They were financing political campaigns; people like Alan Greenspan, that said
the economy's getting richer because the only important thing is the stock is
going up as a result of this. The junk bonds are when you issue credit without
increasing the means of production at all but just transferring ownership out
of the hands of equity owners and workers and into the hands of creditors.
How is the miracle of compound interest a disaster for the 99 percent who must
borrow in order to meet the necessities of life? How does it affect the
overall economy generally?
[0:35:27]
The miracle is that any rate of interest is a doubling time. You can look at
the rate of interest by what's called the rule of 72. If you take 72 and
divide it by a rate of interest, 5, then the doubling time is 14 years. If you
divide it by 8 it's something like 9 years. The miracle of compound interest
is that if you keep reinvesting the interest in new loans it will keep
doubling. But the economy doesn't grow that way. Economies don't grow
exponentially even though the mainstream models project GDP is growing at X
percent per year, economies really grow in S curves.
The more that interest rises, the more that the debt overhead rises, the more
the economy slows down because you're diverting money away from spending on
goods and services -- we talked about at the beginning of the show -- you're
diverting that to pay the banks and the banks don't spend this money back into
the economy. The wealthiest 5 percent simply use their money to make more
loans to get the economy even more in debt and that's really how the 5 percent
and the 1 percent get rich: by indebting the 95 percent or indebting the 99
percent and having this interest grow and double and re-double while the
economy grows less and less. That is exactly why every western economy is
polarizing these days.
To get back into current events, the stock market has been booming under
President Trump. Working and middle class people, even if they don't own
stock, still believe the stock market is some sort of indicator of the health
of the real economy or somehow connected to their economic well-being or
pocketbooks. In the book you consistently bring up the term stock buy-backs
... where basically CEOs who can be paid in stock options use corporate
profits to buy back their own stocks to artificially inflate the price of them
and cash out instead of using profits for capital investment in new factories
and equipment, research and development, or to hire more labor and expand
production. Explain how this became the norm today and help us understand
what's going on with the stock market today and why ordinary people should or
shouldn't be concerned with it.
[0:38:06]
The stock market is going up because companies are being looted to pay stock
owners. Professor Wiskonick (sp?) did a study recently, 92 percent of
corporate profits are spent either on buying back the stock -- which means
that you're bidding up the price by having less and less stock so the earnings
per share rise -- or by raising dividend rates. Only 8 percent of corporate
profits are plowed back into the business. So that means that the economy is
not replacing itself. It's like a farmer whose eating the seed corn instead of
re[planting]. The industrial economy in America is essentially being emptied
out in order to pay the stockowners and about 75 percent of stocks are owned
by the richest 5 percent of the population.
So if you look at who owns the stock, it's not the working class, it's not the
middle class, it's the super rich. The super rich are saying, We're willing to
use all the corporate income to run it down. Basically, the 5 percent have
decided that industrial capitalism is over and it's time to take the money and
run. And you take the money and run by just paying out all the income, just to
yourselves, leaving the corporation an empty shell.
That's how the Chicago Boys introduced free markets into Chile after 1974 when
Pinochet took over from Allende. It's the neoliberal model. It's what happened
in Russia after the neoliberals convinced Russia to go along. It's what's
happening in Greece when you're just emptying out the economy to pay the bond
holders.
It's economic shrinkage. The trick is to get the middle class and the working
class to think the stock market is them when the stock market isn't themselves
at all. It's the five percent.
Since your book is a dictionary of sorts of economic terms the Federal Reserve
system and interest rates are two things you cover in the book. The Fed
recently raised interest rates a quarter of a percentage point. How does this
affect the economy and ordinary Americans? ...
[0:40:56]
The quarter percent rise -- to make a long story short, there is no effect on
the economy at all. Zero. A teeny, marginal squiggle. Because if you look at
any chart of interest rates, you'll see them plunging after 2008 right down to
the bottom -- to zero. The fact is, only the rich people can borrow. Only
corporate raiders can borrow. Only the parasites can borrow. You can't borrow
to create a new factory. You can't borrow to create new means of production.
You can't borrow to employ people. You can only borrow to take over an
existing asset and empty it out and pay the creditors.
The interest rate is so low that corporate raiders can still afford to borrow
at almost nothing and take over any corporation for mergers, acquisitions,
etc. The role of the Fed is then to make sure that their clients -- they're
supposed to be to regulate the banks, but instead their clients are the banks.
The Federal Reserve was created in 1913 as an alternative to what was managing
the economy at that time, which was the U.S. Treasury.
The Federal Reserve is privatizing what should be the Treasury's function of
public money creation and of public credit. The Fed's job is to make sure that
there is no public option in banking and to protect the other big banks,
especially Citibank -- which is the most crooked bank -- Wells Fargo, to make
sure that banks continue to engage in financial fraud against consumers,
against the fraud of selling junk mortgages -- that's how they have AAA
ratings -- basically they're part of what my colleague Bill Black at Kansas
City calls the "criminogenic sector." The Fed is the Public Relations
Department for Citibank and for Wall Street and for Goldman Sachs.
Speaking of banks and mortgages, I'm recalling when President Obama and Larry
Summers convinced the American people that hundreds of billions of their own
taxpayer money was needed to bail out the banks after the financial collapse
in 2008. It was pitched as some extraordinary populist program to help
ordinary Americans which ... didn't do any of the sort and instead handed over
instant cash to Wall Street with no strings attached. Are there specific
examples in that story of how the language of junk economics was used to
deceive the American people?
[0:43:53]
The whole idea of bailout: who was bailed out? The people who [were] bailed
out were the banks that had been writing junk mortgages. Not a single penny of
this went to the American people. It didn't have to go. The solution, that was
called for, is what has happened for the last 5,000 years. When debts go
beyond the ability of people to pay under normal conditions, the debts should
have been written off. You could have let the bank bond holders, essentially,
lose the money. They were bond holders for a bad bank that had been engaging
in massive fraudulent lending -- of making loans to mortgage borrowers, to
corporations, to speculators, that they knew could not be repaid. (I knew that
when I was working for banks on Wall Street.) They knew they couldn't be
repaid. The solution was to write down the debts and to get rid of the debt
overhead so that there would be a crash of the rich people instead of the
economy.
So Obama and Summers had a choice: either you save the economy or you save
your campaign contributors and the 1 percent. And Obama said, My constituency
are my campaign contributors, the 1 percent. He called the banks to the White
House and said, I'm the only guy standing between you and the mob with
pitchforks. Don't worry, I can lead them along; I'm protecting you guys. And
his job was to be a demagogue, supporting Wall Street and his constituency,
using Larry Summers as a patter talk to saying that the host needs the
parasite. The economy needs the banks to take their money. We need the crooks
because without the crooks and without the banks, and without the monopolists,
and without the cable systems charging whatever they want, and without the
phone companies charging whatever they want, the economy would collapse.
Well it wouldn't collapse at all. You had Sheila Bair at the Federal Deposit
and Insurance Corporation saying, Wait a minute. Let's take over Citibank.
Citibank's broke and not only is it broke but it's corrupt and it's hopelessly
incompetent. A free market would be: the incompetent bank gets wiped out. But
Citibank was where Robert Rubin, Clinton's Treasury Secretary, had taken over.
Citibank was the root of where all of the Clinton crime family was centered.
Not only with Rubin but also with his protege Tim Geithner.
[0:46:41]
The whole economy was sacrificed in order to save the Clinton crime group at
Citibank and Goldman Sachs. All of this was concealed by not explaining to the
people where the money was going. There was very little discussion except in
my group -- Randy Wray did a wonderful analysis for the Levi Institute showing
where all the money had gone -- really to bail out the fraudsters; to bail out
fraud and to make it appear as if the economy was rich enough to survive
without the fraud by making industrial workers pay, by shrinking the economy,
by shrinking the middle class, by shrinking the working class and you'd think
that this would be the center of political discussion. But when Bernie Sanders
tried to raise it, you saw what happened to him. The mass media just kept
saying, Oh, it's unthinkable. The reality is that Sanders made socialism into
a good word like it was a century ago.
A century ago, the whole political spectrum from Christian Socialists to
Anarchists to Industrial Capitalists and business schools saw capitalism as
evolving into socialism. Until Bernie Sanders, socialism was identified with
Soviet Russia, with totalitarianism. But now finally, people are realizing
that it doesn't have to be this way. That the only alternatives to
neofeudalism is socialism. Either you're going to have barbarism or you're
going to have a renovation of the economy which means the debt write-down,
anti-monopoly legislation, and prosecution of crooks.
... [Please discuss] the historical significance of the clean slate....
[0:49:10]
Take the case of what's happening in Greece right now: perfect example.
Crooked banks were helped by the Greek government falsifying its statistics by
hiring Goldman Sachs to give fake numbers and convince other banks in France,
Germany, and elsewhere, to buy bonds. The problem was, by 2010, 2012, it's
obvious that Greece couldn't pay the debt. The IMF said, We insist that you do
pay the debt and it's worth pushing you into the worst depression -- Greece
now is in a worse situation than the Great Depression was in in the 1930s.
They're cutting back pensions, they're forcing huge emigration. (You're having
the same thing in Latvia.) If you don't cut back the debts that have grown so
exponentially -- the miracle of compound interest -- that they can't be paid,
then you're going to absolutely devastate the Greek economy.
The IMF and the mainstream economics says, Devastation is actually good
because the economy is so bankrupt that we'll have to privatize it and
privatization is what we want. Privatization means you're going to sell the
land, the ports, the railroads; the electric utilities have already been sold
to German investors. Everything that the Greek economy owned is now being sold
off to foreigners largely on credit because it can't pay the debt. It's like a
family that falls further and further behind, loses the home, runs into debt,
ends up homeless and is destroyed by having taken on too much debt.
That's how entire economies are being run today by the IMF and the World Bank
and by mainstream economics that says it's unthinkable to write down debts. So
I've written a number of books about the whole history of debt cancellation.
Adam Smith said that no government has ever paid its debt, although some have
pretended to, and the IMF and modern economists say, Maybe we can show that
Adam Smith was wrong. Maybe we can show that governments can pay the debts
even at the price of impoverishing the economy and making the U.S. economy
look like Greece. Greece is the future of where America is going now under the
policies of Clinton and Obama and Trump.
From February through July 2015 James K. Galbraith was advisor to the
Greek Minister of Finance, Yanis Varoufakis. In the Introduction of J
Is For Junk Economics, Michael Hudson writes, "Nowhere is the
Doublethink vocabulary more blatant than in the financial conquest of
Greece by the Eurozone `troika' -- the European Central Bank, European
Commission and IMF." When Galbraith was asked whether "the institutions
(the IMF, the EC and the ECB) will have to rescue Greece indefinitely"
he answered:
There is no "rescue" going on here. There is no "rescue," there
is no "bailout," there is no "reform" going on. I really need to
insist on this, because these words creep into our discourse.
They are placed there by the creditors in order for unwary
people to use them, but there is nothing of the kind taking
place. What is going on is a seizure of the assets owned by the
Greek state, by Greek businesses and by Greek households. There
is no sense that this has anything to do with the recovery of
the Greek economy or with the welfare of the Greek people. On the
contrary, the policy is utterly indifferent to those considerations.
--James Galbraith and Luis Martíin,
The Poisoned Chalice, Open Democracy, 1 Sep 2015
GREECE IS THE FUTURE OF WHERE AMERICA IS GOING NOW UNDER THE POLICIES OF
CLINTON AND OBAMA AND TRUMP.
... You were one of the few economists to accurately predict the 2008
financial crash. [see: "The New Road To Serfdom: An illustrated guide to the
coming real estate collapse" (Harper's, May 2006, pp. 39-46] [Do you now have]
predictions for the both the America and global economy? ...
[0:52:14]
For the American economy it's a slow crash until people fight back. Until
people think that there's an alternative. Until they think, It doesn't have to
be this way, the economy is going to shrink and shrink and shrink and there
are going to be more and more empty stores for rent on the big street. Wages
will go down and people are going to have to borrow more and more on their
credit cards just to get by, spend less and less eating out at restaurants,
less and less on goods and services. And it will just shrink until there is a
pushback. And the same thing in Europe.
At least in the United States, America has the ability to run a budget deficit
that'll spend money into the economy and try to slow the economic shrinkage.
But in the eurozone, the euro isn't allowed to run budget deficits. The
eurozone says all growth in credit has to come from the private banks at
interest. When you rely on private banks instead of public banks you rely on
what banks make loans for: they only make loans, as we discussed, to take over
existing companies -- not to help the economy grow at all.
So the eurozone has already turned into a dead zone which is shrinking. You're
having the world outside the United States shrink more and more except for
countries that are withdrawing from the neoliberal orbit: China, Russia, The
Shanghai Cooperation Organization. Basically Eurasia is the only part of the
world that's withdrawing from all of this which is why the neocons wanted to
back Hillary so much to try to force them -- to de-stabilize them and try to
overthrow their governments and make them as neoliberal as Greece or the
United States or Europe.
At Democracy at Work we advocate for worker-owned cooperatives, that is
worker-owned and controlled enterprises where the workers decide
democratically, one member one vote, what to produce, where to produce, how to
produce, and what to do with the profits as a key part of transitioning to a
better economic system. We believe that you can't have political democracy
without first having economic democracy. What can people do, in addition to
what we do, who feel helpless and powerless and want to achieve economic
democracy? Would one example be to nationalize the banks or create some sort
of political movement to nationalize the banks?
[0:55:40]
Here's the problem: once the financial managers have emptied out corporations,
there's nothing they'd rather do than turn these big corporations over to the
workers. Because they'll say, Okay, you operate a broke steel company or you
operate the broke auto company and see what you can do -- as long as they
leave the debts in place. But as long as the existing corporate economy -- as
long as the car companies and the industrial companies and the manufacturing
firms and the farms are all left as deeply in debt as they are, it doesn't
matter who owns them or what they can do as long as they have to repay the
debt. So you do need a public option.
Back in 2008 when Citibank was broke, imagine what would have happened if the
government would have said, Ok Citibank's broke. We're taking it over. We're
not paying the bond holders and the stock holders because they invested in a
criminogenic organization. But we're going to operate this as a public bank.
So now that Citibank is a public bank, and Wells Fargo, and Bank of America,
and the other banks that have paid tens of billions of dollars for fraud, now
that they're public banks, they can issue credit cards at cost; at 2 percent
interest -- what they borrow. They won't make loans for corporate takeovers.
They'll make loans to actually help companies grow. You need a public option
for this and you need public banking for this because the existing financial
model is extractive, not productive.
What would be the basis for public banking? One way of getting away from the
payday loans that people have is use the Post Offices as the germs of banks.
When I worked on Wall Street, 3 percent of American bank deposits were in the
Post Office for banks which is why the banks wanted to drive them under. Maybe
15 or 20 percent were in savings banks and savings and loans. They were mutual
savings banks. They don't exist anymore. They were looted by the commercial
banks taking them over.
In order to change the ownership structure and the function of industry, you
need a financial system that actually promotes industry. All of this is what
Saint-Simon in France wrote about 200 years ago in the 1810s, 1820s. That was
a basis for Saint-Simonian socialist reform, for French socialist reform. Marx
accepted this later. He admired Saint-Simon. You had German banks in the late
19th century following this new public banking model with a unity between
government, banks, and industry.
Everybody expected that this would become the basis for worker owned for
socialist industrialization. World War I changed all of that and you had a
retrogression and that's what both Killing The Host and J Is For Junk
Economics are really all about, to describe how history was turned into a
detour, into a financial detour that's leading to neoliberalism and to
neofeudalism making the kind of world that you want to see -- an economy run
for the producers -- impossible.
... Do you think the solution is then for there to be some sort of political
movement essentially focused on changing the financial system? Is that our
only way out of this? Does it have to come from the grass roots?
[0:59:07]
It has to be a political movement. And that requires meaning breaking up the
Democratic Party. The Democratic Party now is the party of Wall Street and the
neocons. You have to have some political party that's going to work. If you're
a third party, as Ralph Nader found out, the media are just going to ignore
you and you're not going to have much effort. You have to say, What party can
you take over? The Tea Party people tried to take over the Republicans and you
see where they are. They are way out-voted by the Koch brothers and Donald
Trump has just surrendered to Paul Ryan in the budget. Really the most
demagogic, doublethink, Orwellian party is the Democratic Party and you've got
to take it away from Wall Street. You've got to get rid of Hillary Clinton and
her gang forever.
That requires a fight. If the fight means that the Bernie supporters and the
socialists are expelled from the Democratic Party then you want to leave the
remaining Wall Street as only the 1 percent. They'll have the donors but they
won't have any voters at all and the Party that's expelled, the Socialist
Party, in effect, is going to become the Democratic Party, the real democratic
party. And you've got to have a political fight. Without a political movement
you're not going to be able to achieve any change in the economic system.
We want to thank you for your time today. Please tell us how people can find
your book, website, etc., etc.
My website is michael-hudson.com and the books are all available on amazon. I
couldn't get a regular publisher to publish the economic book because they
say, This is not bad news. Saying that the economy is going to go down is like
telling people you're going to have bad sex after 30. People won't want to
read about -- they want to indulge in the fantasy that they can get rich by
investing. Can't you tell them what stocks to get rich on as the economy is
shrinking and destroyed? So amazon publishes the book.
My Institute For the Study of Long-Term Economic Trends finances most of [my
work]. Basically we're funded to do archeology and the history of debt
cancellations and the jubilee year in antiquity. Most of our writing is on
Sumer and Babylonia actually. But now we're doing the modern economic books as
-- almost treating the modern economy as an archeologist would treat it from
the future saying, How did the economy ever get into this mess? How are we
ever going to explain it? It doesn't seem to make sense....
... [Please] give us a brief rundown of what got you interested in economics,
where you started out, and your role as a Wall Street financial analyst?
[1:02:50]
I wanted to see how the economy worked and the way of finding out how it
worked was to go to work on Wall Street. So I went to work on Wall Street and
I went to work for banks basically as a statistician. Not as a mathematical
economist but actually doing statistics. I became Chase Manhattan's balance of
payments economist.
I wanted to find out what is the deficit stemming from? The entire balance of
payments deficit in the 1960s when I was working there came from the military
spending abroad. So I found out it was really the Vietnam War and allied
military spending.
I was hired for a year by Arthur Anderson -- the accounting firm that was
closed down for fraud on the Enron scandal -- who was going to publish it. But
McNamara at the World Bank apparently called them and said if you publish this
you'll never get another government contract. So I published it through NYU,
the Solomon Brothers Economic Institute. [See: A Financial Payments-Flow
Analysis of U.S. International Transactions: 1960-1968] And then went into
academia. I figured, Well, I did have a PhD but it didn't tell me anything
about how the real world worked. So I tried to talk about trade theory and
financial theory and there was really no way that I could fit it into the
curriculum.
Herman Kahn at the Hudson Institute offered to hire me -- he was the model for
Dr. Strangelove -- and said, Don't call yourself an economist. An economist
tells people you're going to save the economy by giving more money to the rich
people. Call yourself a futurist. He became a friend of mine, other people,
futurists, became friends of mine.
I really called myself a futurist until I got interested in archeology where
I've been spending much of my effort for the last 30 years trying to see how
the ancient near east and classical antiquity and medieval Europe all solved
their debt crises, basically writing a history of debt crisis showing that
every economy has had to cancel the debt. So you could say all my work in
economics since the 1960s, more than 50 years, is spent on seeing how society
handles its debt crisis.
In addition to some of his books listed at the beginning,
the following is a selection of Michael Hudson's articles,
papers, and interviews.
* The Economics of the Future, counterpunch, May 2, 2017
* How Bankers Became the Top Exploiters of the Economy, counterpunch, Mar
15, 2017
* Why Failing to Solve Personal Debt and Polarization Will Usher in a New
Dark Age, nakedcapitalism, Jan 23, 2017
* The Wall Street Economy Has Taken Over The Economy & Is Draining It!,
Financial Repression Authority, Apr 28, 2016
* The Slow Crash. The Shrinking of the Real Economy, guns + butter - the
economics of politics, Apr 2016
* The Insider's Economic Dictionary - The Antidote to Euphemism,
michael-hudson.com, 2013-2015
* Veblen's Institutionalist Elaboration of Rent Theory, nakedcapitalism, Aug
2012
* Productivity, The Miracle of Compound Interest, and Poverty,
nakedcapitalism, Apr 22, 2012
* 2,181 Italians Pack a Sports Arena to Learn Modern Monetary Theory -- The
Economy Doesn't Need to Suffer Neoliberal Austerity, Levy Economics
Institute of Bard College, Feb 2012
* The Road to Debt Deflation, Debt Peonage, and Neofeudalism, Levy Economics
Institute of Bard College, Feb 2012
* The Transition from Industrial Capitalism to a Financialized Bubble
Economy, Levy Economics Institute of Bard College, Oct 2010
* Debtor Nation: The Hijacking of America's Economy ACRES, Jan 2008
* The New Road To Serfdom: An illustrated guide to the coming real estate
collapse, Harper's, May 2006
* The $4.7 Trillion Pyramid: Why Social Security won't be enough to save
Wall Street, Harpers Apr 2005
* Real Estate and the Capital Gains Debate, with Kris Feder, Levy Economics
Institute of Bard College, Mar 1997
* FILM:
* Why the Greek debt should be cancelled. It was odious in the first
place, SYMPOSIUM | Greece, Out of The Crisis: Debt-End or Dead-End,
May 2017 (15:00)
* Michael Hudson on the Orwellian Turn in Contemporary Economics, The
Real News, Nov 2016 (15:22)
* Meet the Renegades: Michael Hudson, Renegade, Inc., Nov 2016 (30:07)
* The Delphi Initiative - Speech by Michael Hudson, Defend Democracy
Press, Jun 2015 (13:44)
* Michael Hudson: Money & Debt, Modern Money and Public Purpose,
Columbia Law School, 2012 (25:55), local MP3 file (37+ MB)
https://www.ratical.org/ratville/MichaelHudson-JunkEcon.html (hypertext)
https://www.ratical.org/ratville/MichaelHudson-JunkEcon.txt (text only)
https://www.ratical.org/ratville/MichaelHudson-JunkEcon.pdf (print ready)